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No matter which party wins control of Congress or the White House on election day this November, NAR is gearing up for a blockbuster 2025 that will significantly impact commercial real estate.
Former President Donald Trump’s tax reform bill, The Tax Cuts and Jobs Act of 2017, expires at the end of 2025, which means Congress faces monumental tax reform yet again. The implications for commercial real estate are massive.
During the debate on TCJA in 2017, NAR’s advocacy team successfully defeated some of the most harmful tax proposals for the commercial real estate sector, including one calling for a total repeal of Sec. 1031 like-kind exchanges, which allow investors to defer capital gains taxes on the sale of real property when they reinvest the gains in a similar property.
NAR, along with the 1031 Coalition, successfully persuaded lawmakers that the real estate portion of 1031 was essential. The final bill only repealed 1031 for personal property.
Lawmakers initially thought 1031 was not needed because they were proposing full expensing for all real estate immediately instead of depreciating it. In a world of full expensing, they naively argued, 1031 was redundant. Although we convinced them otherwise, the dynamics have changed. In 2017, the 1031 debate was about how it fits into the bigger picture of tax reform. Since then, it’s been primarily about revenue.
NAR has successfully defended 1031 for more than a decade on several fronts. President Joe Biden’s annual budget proposals and Build Back Better plan all proposed to cap or eliminate it.
Some lawmakers continue to see 1031 as a guarded pot of gold that can be used to offset spending or tax cuts elsewhere. When we show them our research and share the experience of NAR’s members, attitudes change quickly. This tax tool creates local economic investment that is almost immeasurable. Perhaps the biggest myth with 1031 is that people use indefinite exchanges to avoid paying taxes. A 2015 study revealed that 88% of exchanged properties were later disposed of through a taxable sale and mostly with more tax collected than if the exchange had never happened. Taxes paid are 19% higher when a property is exchanged then sold versus never having been exchanged.
Allowing investors a free flow of capital allows them to buy into higher-priced and more productive properties, which creates more tax revenue—and job opportunities and growth. Furthermore, the vast majority of properties exchanged are actually held by mom-and-pop investors.
NAR’s advocacy has never been more vital. Our top tax expert laid out what he deemed “the ugly 11” tax proposals from the Build Back Better plan that could have devastated commercial real estate. Thanks mainly to our advocacy efforts, not a single one was enacted.
Also among those ugly 11 were plans to tax unrealized gains at death, tax carried interest as ordinary income, limit the Section 199A qualified business income deduction of 20%, raise the capital gains tax rate, and expand the 3.8% net investment income tax.
Maintaining this winning streak into next year will take friends on both sides of the aisle and in key committees who have responded positively to our education campaigns.
The U.S. commercial real estate market is valued at $22.5 trillion, making it the fourth-largest asset market. Real estate makes up nearly one-fifth of the entire U.S. economy. Keeping these sectors healthy means keeping the American economy healthy.
The bipartisan REALTOR® Party model is tailor-made for moments like this. Last year, our disbursements were split 50% between Democrats and Republicans. We don’t focus on party— we focus on good policy and research. Thanks to an engaged army of 1.5 million members nationwide who fuel the nation’s largest nonpartisan political action committee, we are ready for this fight again.
